Starbucks Reports a Sweet Second-Quarter Surprise

Starbucks (SBUX) released higher-than-expected earnings of $217.3 million, or 28 cents a share, on revenue of $2.13 billion for its fiscal second quarter of 2010, after luring more customers to its coffee shops even while raising the price of coffee drinks.

The results compare with analyst estimates of 25 cents and profit of 3 cents a year earlier.

Even more surprising was the same-store sales growth of 7% at the Seattle-based chain, the second-consecutive quarter of growth after two years of slipping sales. Starbucks attributed the performance to a 3% increase in traffic and a 4% boost in average purchases, evidence that the price increases of earlier this year of up to 10% have already begun to improve the company's results.

Instant Coffee and Store Openings

After the long string of same-store-sales declines was turned around in its first quarter, analysts wondered whether Starbucks would manage to keep the story positive. The stock price was up 13 cents, or 0.5%, to $25.39 by the stock market's close Wednesday. Trading in extended hours after the earnings report gave a nod of appreciation to the coffee giant of 56 cents, or 2.2%, higher to $25.95 as of 6:42 p.m. in New York.

The story, according to CEO Howard Schultz, was again the positive effect of Starbucks's instant coffee, VIA, store openings in Asia and Europe and the continuing undercurrent he insists is his legacy: "Our pledge to bring the highest quality coffee to our customers."

Executive Vice President and CFO Troy Alstead gives credit to the company's "financial discipline and rigor." Starbucks is therefore increasing estimates for non-GAAP earnings per share for fiscal 2010 to a range of $1.19 to $1.22 -- including 4 cents for the 53rd week in this fiscal year.

The other big story for upcoming quarters will be the contribution of new licensing agreements to distribute Seattle's Best Coffee to Burger King (BKC) outlets, a move that will be realized later this summer as the fast food company seeks to challenge rival McDonalds (MCD) for a spot in the breakfast-to-go business.